A crucial aspect of financial planning is tax-saving. An intelligent tax-saving strategy serves the dual objective of assisting you in meeting your financial goals and saving tax. Under different Sections, there can be various tax benefits using tax saving investment options. For different taxpayers, some schemes are more effective than others; as a result, there can be specific tax saving plans for parents with only a single income and parents with double income. However, some schemes are more effective if you fall under the category of senior citizens and retired persons.
How to plan for tax saving investments
Every financial year, it is first necessary to plan for tax saving investments before any step is taken. The 1st of April starts the tax-saving period for non-salaried and salaried taxpayers. The aim of having an efficient tax saving investment should be more than to generate tax exemption but to get tax-free income.
Instead of waiting for the completion of a financial year and then choosing ad-hoc tax-saving instruments, it is better to start the process of investments at the beginning of the financial year. This way, you can have appropriate time for planning your investments and availing the highest returns. Factors such as the safety of the liquidity, fund, and size of returns are some things that are needed to be considered when focusing on and selecting the right tax saving investment plan for you.
Most of the tax saving investment strategies fall under Section 80C of the Income Tax Act, which would make you, the taxpayer, eligible for tax exemption to a maximum limit of Rs. 150,000. You can choose from several options, such as a Public Provident Fund, Equity Linked Saving Scheme (ELSS), Life Insurance, Fixed Deposits, National Savings Scheme, and Bonds.
Tips for income tax saving
Several tips can help you with income tax saving, and these tips include –
- Availing of the tax benefits on a home loan;
- Investing in the proper tax saver scheme that is the most suitable for you;
- Availing of health insurance plan;
- Filing the income tax returns on time;
- Claiming tax deductions on education loans, health insurance premiums, medical expenses, etc.
Tax-saving Investments beyond Section 80C
Apart from mainstream investments, you can utilise other schemes under the Income Tax Act of 1961. These schemes are –
- Within the limits of Section 80C and under Section 80CCC, you can make contributions towards specified pension funds from a life insurer such as LIC would qualify for tax deductions;
- Under Section 80CCD (1B), except the deduction of Section 80C, you and other taxpayers can claim a deduction of Rs. 50,000, which does not come under the direct tax saving investments;
- Under Section 80E, the interest component paid towards an education loan is not taxable; however, this waiver exists only till the first eight years of loan repayment;
- Under Section 24, tax deductions are available for home loan interest upto Rs. 200,000 lakhs;
- Under Section 80GGA, donations to a college that the Central Government has approved or to scientific research;
- Under Section 80G, you can have tax deductions made if donations are made to charitable institutions;
- Under Section 80GGC, donations made towards political parties are waived if the party is registered under Section 29A of the Representation of People Act (RPA) of 1951.
Conclusion
This article consists of tips for tax saving investments, which do not include direct schemes, but the preparations needed before the investments are made. Further, you must follow some steps before making an investment strategy. Also, there are several tax saving investments that go beyond Section 80C. With some of these investments, there may be some limitations to tax deductions, but apart from that, you must file the appropriate tax documents on time.
